Since December 1986 the European Union has had in place a directive to protect the rights of commercial agents if and when their contracts are terminated by vendors. It's called Council Directive 86/653/EEC on the Co-ordination of the Laws of the Member States relating to Self-employed Commercial Agents.

An agent is defined as “…a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (“The Principal”) or to negotiate and conclude such transactions on behalf of and in the name of the principal” For the purpose of the directive, the term "self-employed intermediary" applies equally to individuals and corporations acting as agents.

The directive was based largely on the German Commercial Code which indemnified agents upon termination based on past earnings. However, the practice in France had been to estimate the loss of future earnings that an agent would suffer upon terminations and to provide compensation payments based on this estimate. The EU council therefore left it up to individual member states to choose:
  1. Which type of payment would be made to agents
  2. Whether the legislation would apply to Goods or Services or both
  3. Whether the agency relationship needed to be evidenced in writing, either in the form of a contract or written communications between the vendor and the agent.

The result is that vendors who use commission agents in EU member states, need to be fully aware of the implications of doing so. With the passage of time, agents accrue statutory entitlements and vendors can't negotiate these away in the event of a dispute.

Indemnity payments are capped at one year, based on the average of the past five years' earnings. Compensation amounts are not capped, but precedent suggests that they would be calculated as two years' remuneration based on the average of the last three years.

For SaaS companies, the directive presents a particular challenge because of the legal definition of Goods and Services. There is case law in this area and if you would like to contact us, we will happily share more insight into this subject.